Issue Management

SAHIL GARG
B.E Chemical with MBA
CM 10227

Learning Outcomes
To understand the process of issue management and
SEBI guidelines related to issue management activity.
To understand the role of intermediaries in the issue
management activity and SEBI norms for intermediaries
in relation to issue management activities.

Issue Management

Issue management, now days, is one of the very

important fee based services provided by the
financial institutions.
To protect the investors interest and for orderly
growth and development of market, SEBI has put
in place guidelines as ground rules relating to
new issue management activities.
These guidelines are in addition to the company
law requirements in relation to issues of capital /
securities.
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Types of Issues
Issues

Public

Rights

Private placement

Private
placement
(For unlisted
companies)

Initial Public Offering

(For unlisted companies)

Fresh Issue

Offer for sale

Preferential
Issue
(For listed
companies)

Qualified
Institutions
Placement
(For listed
companies)

Further Public Offering

(For listed companies)

Fresh Issue

Offer for sale

Types of Issues
Initial Public Offering (IPO) is when an unlisted company

makes either a fresh issue of securities or an offer for sale

of its existing securities or both for the first time to the
public.
Further public offering (FPO) is when an already listed
company makes either a fresh issue of securities to the
public or an offer for sale to the public, through an offer
document.
Rights Issue (RI) is when a listed company which proposes
to issue fresh securities to its existing shareholders as on a
record date.
A private placement is an issue of shares or of convertible
securities by a company to a selected group of persons
which is neither a rights issue nor a public issue.
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Eligibility norms for making issues

Filing of Offer Document:
Issue of security, by a listed company through rights issue in excess of Rs. 50
lakh, a draft prospectus should be filed with SEBI through an eligible registered
merchant banker at least 21 days prior to filing it.
Public issue / Offer for sale by Unlisted Companies
Pre issue net worth of Rs. 1 crore
Track record of distributable profit in terms of Sec. 205 of the Companies Act
Otherwise, shares / convertible security can be issued only through book
building process - 60% of the issue size would be allotted to qualified institutional
buyers (QIB).
Public issue by listed companies:
Issue size does not exceed five times its pre issue net worth as per the last
available audited accounts.
Otherwise, eligibility only through book building process on the condition that
60% of the issue size would be allotted to QIBs.
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Eligibility norms for making issues

BOOK BUILDING:
Book-building means a process by which a demand for the
securities proposed to be issued by a body corporate is elicited
and built up and the price for such securities is assessed for the
determination of the quantum of such securities to be issued
by means of notice/ circular / advertisement/ document or
information memoranda or offer document.

Eligibility norms for making issues

Credit Rating for Debt Instruments:
For issue, both public and rights, of a debt instrument, including convertibles,
credit rating irrespective of the maturity or conversion period is mandatory
and should be disclosed.
Outstanding Warrants / Financial Instruments:
An unlisted company is prohibited from making a public issue if there are any
outstanding financial instruments / any other rights entitling the existing
promoters / shareholders any option to receive equity share capital after the
initial public offering.
Partly Paid-up Shares:
Before making a public / rights issue all the existing partly paid up shares should
be made fully paid up or forfeited if the investor fails to pay call money within 12
months.

Pricing of Issues
A listed company can freely price shares/convertible

securities through a public/ rights issue.

An unlisted company eligible to make a public issue and
desirous of getting its securities listed on a recognized
stock exchange can also freely price shares and
convertible securities.
The free pricing of equity shares by an infrastructure
company is subject to the compliance with disclosure
norms as specified by SEBI from time to time.
Freely pricing their initial public issue of shares/
convertible, all banks require approval by the RBI.
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Pricing of Issues
Differential Pricing:
Listed/unlisted companies may issue shares/convertible securities in
the firm allotment category at a price different from the price at which the
net offer to the public is made, provided the price at which the securities
are offered to public.
Price Band:
The issuer can mention a price band of 20% (cap in the price band
should not exceed 20% of the floor price) in the offer document filed with
SEBI and the actual price can be determined at a later date before filing
it.
Payment of Discount / Commissions:
Any direct or indirect payment in the nature of discount / commission /
allowance or otherwise cannot be made by the issuer to any firm allottee
in a public issue.
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Pricing of Issues and Advertisement

Denomination of Shares:
Public / rights issue of equity shares can be made in any denomination in
accordance with Sec.13(4) of the Companies Act and in compliance with
norms specified by SEBI from time to time.
The companies which have already issued shares in the denominations of
Rs. 10 or Rs. 100 may change their standard denomination by splitting /
consolidating them.
ISSUE ADVERTISEMENT
Includes notices, brochures, pamphlets, circulars, show cards, catalogues,
placards, posters, insertions in newspapers, pictures, films, cover pages of
offer documents or any other print medium, radio, television programs through
any electronic media.
The lead merchant banker should ensure compliance with the guidelines on
issue advertisement by the issuing companies.
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Issue Intermediaries
MERCHANT BANKER:
SEBI (Merchant Banker) Regulations, 1992, defines
merchant banker as:

any person engaged in issue mgt.

selling, buying or subscribing to securities
acting as manager, consultant or advisor for such services.
mandatory in case of public issues, right issues, open offers
or buy-back.
Merchant bankers require compulsory registration with the SEBI to
carry out their activities
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Issue Intermediaries
MERCHANT BANKER:
The lead manager performs following:

pricing the issue.

timing the issue.
marketing the issue.
preparing the offer document.
listing & allotment/refund.

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Issue Intermediaries
UNDERWRITERS:
Another important intermediary in the new issue/ primary market is the
underwriters to issue of capital who agree to take up securities which
are not fully subscribed.
They make a commitment to get the issue subscribed either by others
or by themselves.
Underwriters are appointed by the issuing companies in consultation
with the lead managers / merchant bankers to the issues.
To act as underwriter, a certificate of registration must be obtained from
SEBI.

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Issue Intermediaries
UNDERWRITERS:
The fuctions of Underwriters are:
to abide by the code of conduct; he has to maintain a high standard of
integrity, dignity and fairness in all his dealings.
Agreement with clients
An underwriter cannot derive any direct or indirect benefit from
underwriting the issue other than by the underwriting commission.

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Issue Intermediaries
BROKERS TO THE ISSUE:
Brokers are persons mainly concerned with the procurement of
subscription to the issue from the prospective investors.
The managers to the issue and the official brokers organize the
preliminary distribution of securities and procure direct subscription from
as large or as wide a circle of investors as possible.
The brokerage applicable to all types of public issue of industrial
securities is fixed at 1.5%, whether the issue is underwritten or not.
REGISTRARS to an Issue and SHARE TRANSFER AGENTS:
intermediary in the primary market, carry on activities such as
collecting applications from the investors, keeping a proper record of
applications and money received from the investors or paid to the
sellers of securities and assisting companies.
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Issue Intermediaries
REGISTRARS to an Issue and SHARE TRANSFER AGENTS:
Funtions:
allotment of securities in consultation with the stock exchanges.
finalizing the allotment of securities and processing / dispatching
allotment letters, refund orders, certificates and other related documents
in respect of the issue of capital.
DEBENTURE TRUSTEES:
A debenture trustee is a trustee for a trust deed needed for securing
any issue of debentures by a company.
a certificate from the SEBI is necessary.
Only scheduled commercial banks, PFIs, Insurance companies and
companies are entitled to act as a debenture trustees.

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Issue Intermediaries
DEBENTURE TRUSTEES:
Call for periodical report from the company.
Inspection of books of accounts, records, registration of the company and the
trust property to the extent necessary for discharging claims.
Take possession of trust property, in accordance with the provisions of the
trust deed.
Enforce security in the interest of the debenture holders.
Carry out all the necessary acts for the protection of the
debenture holders and to the needful to resolve their
grievances.
Ensure refund of money in accordance with the Companies
Act and the stock exchange listing agreement.
Inform the SEBI immediately of any breach of trust deed /
provisions of law.
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Issue Intermediaries
PORTFOLIO MANAGERS:
Portfolio manager are defined as persons who in pursuance of a
contract with clients, advise, direct, undertake on their behalf the
management/ administration of portfolio of securities/ funds of clients.
FUNCTIONS:
The composition and the value of the portfolio, description of security,
number of securities, value of each security held in portfolio, cash
balances aggregate value of the portfolio as on the date of report.
Transactions undertaken during the period of report including the date
of transaction and details of purchases and sales.
Beneficial interest received during that period in respect of interest,
dividend, bonus shares, rights shares and debentures.

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THANK YOU

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